The Union government may consider selling shares in National Aviation Co. of India Ltd, or Nacil, which runs Air India, in an initial public offering (IPO) in the second half of 2008, even as the state-run firm prepares to select joint venture (JV) partners for a handful of related businesses in a bid to increase revenues.The proposed float and new ventures are part of the restructuring exercise that the firm is going through after the government merged two of its airlines—Air India and Indian Airlines—into Nacil.The merger is expected to be completed by the end of fiscal 2009.“We may consider issuing an IPO in the second half of this year,” said Union aviation minister Praful Patel. He had said earlier that about 10-15% of the merged entity’s equity would likely be sold to enhance the carrier’s equity base.Meanwhile, the JVs are modelled on German carrier Deutsche Lufthansa AG, which, too, restructured from a state-owned airline with most of its revenues coming from passenger operations to a more diversified portfolio.Like Lufthansa, Nacil, too, will work under six different business units: domestic and international passenger operations, cargo operations, maintenance and repair work, ground handling services, low-cost carrier, and training.To bring in specialist expertise, Nacil will partner private groups for three of the above units—in aircraft maintenance, ground handling operations and training—over the next one year.It has already struck a deal with logistics firm Gati Ltd leasing out five of its freighter aircraft, most of which were converted old aircraft, for cargo operations.Of the rest, said Air India’s chairman and managing director Vasudevan Thulasidas, the airline is seeking alliances for four dedicated aircraft maintenance centres or firms running MRO (short for maintenance repair and overhaul) operations across the country as also for a ground handling partner.Thulasidas said the airline will have a controlling stake in all JVs.“We are hoping to sign the agreements with Boeing and Airbus this month. For engines we have to select somebody; so the request for proposals we will be able to publish this month, components will come a month or two later,” he said.Two separate MRO units formed with Boeing Co. and Airbus SAS will also “have a third partner, who will be a MRO specialist, a company from abroad”, he added.Airlines in India together have a fleet of more than 310 aircraft currently, including 140 owned by Air India, with another 480 slated to join over the next five years, creating ample catchment for such maintenance centres.Boeing’s wholly owned subsidiary Alteon Training has also been selected for creating a JV facility for pilot training in Hyderabad.“This will be built from scratch because there is land available (in Hyderabad),” said Dinesh A. Keskar, vice-president (sales) of Boeing’s commercial aeroplanes business, adding the facility will also be open for use by private airlines such as Gurgaon-based SpiceJet Ltd eventually.Nacil is also shortlisting a partner for ground handling operations both in India and abroad.It already has a tie-up with Singapore Airport Terminal Services Ltd for ground handling at the new airports of Bangalore and Hyderabad that start operations by March.

Macquarie has maintained an ‘outperform’ on Patel Engineering after the company announced better-than-expected margins, which made up for marginal disappointment on the topline. “The topline in (third quarter) came in marginally below expectations.

However, EBITDA margins more than made up for the shortfall,” said the report, adding, “the company recorded an EBITDA of Rs 592 million (Rs 59.2 crore), up 26% Y-o-Y.” According to the brokerage, the company is pre-qualified for Rs 60 billion (Rs 6,000 crore) worth of projects, processing of which is expected in the near term.

The management has indicated that they would bid for orders worth Rs 100 billion over next 12 months, adds the report. The company’s order book currently stands at Rs 55 billion (Rs 5,500 crore), 3.4 times trailing 12 months’ revenues. The order book number does not include any in-house build-operate-transfer (BOT) projects, notes the report.

ABG Shipyard

CMP: Rs 936.65

Target Price: Rs 1,096

Prabhudas Lilladher has put an ‘outperformer’ rating on ABG Shipyard after the company’s topline grew by 68% Y-o-Y to Rs 2,584 million (Rs 258.4 crore), accompanied by strong operating margin of 25%.

“On account of higher-than-expected EBIDTA margin, we are raising our margin estimate for FY08 from 19% to 24%, which is an increase of 18% to our earning estimate,” said the brokerage.

“We are also revising our FY09 turnover estimate upwards by 20% to Rs 18.9 billion (Rs 189 crore) on account of the expansion at Surat,” it added. The company has announced Rs 4 billion (Rs 400 crore) expansion of its Surat facility, which will increase its fabrication capacity by four times, noted the report. The brokerage added that in order to fund expansion, the company has issued four million warrants to its promoter at a price of Rs 796.

Further, the company plans to raise Rs 8 billion (Rs 800 crore) through a QIB issue and the estimated equity dilution, post-issue, is likely to be 22%. “Currently, the stock trades at 16 times FY09 estimates. We rate the stock an ‘outperformer’ with a price target of Rs 1, 096,” said the report.

Shree Cement

CMP: Rs 1,325.10

Target Price: Rs 1,693

ICICI Direct has upgraded Shree Cement to ‘outperformer’ after the company reported a 44% increase in its topline on account of its 1.5 million tonne per annum (TPA) capacity addition during the quarter.

“Cement despatches during the quarter amounted to 1.52 million tonne, up by 17.9% Y-o-Y,” said the report. Strong demand boosted realisations to Rs 3,440 per tonne in Q3FY08 from Rs 3,230 per tonne in Q3FY07, while operating margins improved from 45.12% in Q3FY07 to 46.27% in Q3FY08, it added.

While profit before interest, depreciation and taxes increased by 56% during the quarter, the company’s 18 MW captive power plant (CPP-IV) at Bangur City, Rajasthan, resulted in cost savings. However, the report added, higher depreciation costs due to the capacity expansion impacted the company’s bottomline.

FII outflow of Rs 630.80 crore on 10 January 2008 was a result of gross purchases of Rs 4334.20 crore and gross sales Rs 4965 crore. The 30-share BSE Sensex lost 287.70 points or 1.38% at 20582.08 on that day.